Ghost Mail (Adcorp | Alviva | Brimstone | Ellies | Mpact)

Adcorp to shut down allaboutXpert Australia

No buyers could be found, so voluntary administration comes next

As noted in recent results, Adcorp has been dealing with significant issues around profitability in the allaboutXpert Australia business. This is a non-core operation, so Adcorp wasn’t about to distract management and take risks with the balance sheet to fix it.

Efforts to find a buyer for the business have been unsuccessful, so Adcorp has elected to place the group into voluntary administration.

This business contributed under 1.7% of Adcorp’s revenue in the interim period and is clearly not financially lucrative, so shareholders are probably better off from this decision.

It’s “firm intention” time for Alviva

A jump in the share price of 10.3% was an early Christmas pressie for shareholders

After a cautionary announcement released back in June, a consortium of investors and some members of the Alviva management team will be making an offer to buy all remaining shares in the company.

This will be proposed as a scheme of arrangement, which is an expropriation mechanism that is used to apply the outcome to all shareholders provided the 75% approval is obtained.

The price of R28 per share is a premium of 45% to the volume weighted average price before the expression of interest was submitted in June.

This is effectively a take-private by the existing B-BBEE partners in Alviva who currently hold 18.7% in the company. If it goes ahead, this deal would position Alviva as a majority Black-Owned ICT company.

Brimstone voluntary NAV disclosure

The intrinsic NAV per share is down 11.7% over nine months

As an investment holding company, intrinsic net asset value (INAV) per share is the measure that most investors would use in assessing Brimstone. As is typical in these companies, the share would then trade at a discount to INAV per share for various reasons ranging from head office costs through to performance (or lack thereof) of underlying investments.

In the past couple of years, Brimstone has traded at a discount of roughly 45% to 55% of INAV. When the market pushes the risk-off button, the discount inevitably widens.

A major driver of the discount is that the bulk of the group’s value is derived from other listed companies that investors can access directly. Of the gross value of R5.1 billion, a significant R3.6 billion is attributed to the investments in Oceana and Sea Harvest. There are other investment holding companies on the JSE that trade at much smaller discounts, not least of all because they hold private assets rather than stakes in other listed companies.

As a technical point, investment holding companies generally don’t provide for capital gains tax on large stakes in listed companies, as there are income tax relief provisions available when unbundling stakes like these. An unbundling would be the likeliest realisation of value. In contrast, capital gains tax provisions are raised on smaller investments with the goal of the INAV then reflecting an after-tax view on the company.

Brimstone’s INAV has decreased by 11.7% over nine months.

Ellies: a group in transition

From satellites to “smart infrastructure”

With a loss after tax in the six months to October of R34.9 million, the winds of change need to blow at Ellies. In fact, the hurricane of change is needed, because losses have accelerated sharply.

In the past year, the net asset value per share has dropped by 36.9% and the share price doesn’t look much better to be honest.

With the Manufacturing segment closed, only the Trading and Distribution segment remains. With various cost-saving initiatives being implemented in the core operations, Ellies is also in the process of trying to raise capital to execute strategies in alternative energy, water storage and harvesting, connectivity and smart home technology.

It’s easy to play buzzword bingo of course. The real test lies in implementation, something that Ellies will need to prove to the market beyond the progress already made in alternative energy products. Eskom does a great job of helping with demand in that product category.

The balance sheet is starting to look rather weak, so Ellies needs to move quickly with these strategic changes.

Mpact to invest R1.2 billion in Mpumalanga

This investment is being driven by growth in the export fruit sector

With everything going on in South Africa (and especially load shedding), it’s easy to become despondent and forget that we still have a very strong private sector. We also have pockets of excellence that can compete on the global stage, like our fruit exports.

The downstream impact of a successful industry is that companies invest in the supply chain, creating jobs and driving the economy forward. A great example is Mpact’s R1.2 billion investment project at the Mkhondo Paper Mill in Mpumalanga. This mill focuses on semi-chemical fluting, a virgin containerboard grade that is used in cold-chain applications due to high strength, moisture resistance and durability.

The project is expected to be completed in 2025 and should produce an internal rate of return in excess of 20%.

It will be funded by Mpact’s existing operations and some debt, which would lead to borrowings peaking in 2024.

Little Bites:

• Director dealings:
  • A prescribed officer of ADvTECH has sold shares worth roughly R1.45 million
  • An associate of a director of Ethos Capital has acquired shares worth over R430k
  • In a useful reminder that many JSE directors have borrowed money to buy their shares in the listed companies, a director of Equites has pledged more shares to Investec under a loan agreement
  • A prescribed officer of Spear REIT has sold shares worth R365k

• Marshall Monteagle announced interim results for the six months to September. Group revenue from continuing operations increased by 53% and profit before tax on trading and property operations increased by 77%. But due to losses on revaluation and sales of investments, the group slipped into a net loss position.

• As part of the broader deal with Allianz in Africa, Sanlam Emerging Markets has redeemed shares held by Santam. This results in a payment of R126.5 million to Santam. Notably, Santam retains its economic participation rights in the general insurance investments in India and Malaysia.

• Southern Sun announced that the sale of the Southern Sun Ikoyi Hotel in Nigeria has met all conditions precedent, which means that the deal has closed and that the sales proceeds were received.

• In a related party transaction that is an important part of Sea Harvest’s supply chain, the supply agreement with the Vuna Companies has been extended for a further three years. Brimstone is a shareholder in both companies. Although this isn’t a related party transaction as defined under JSE rules, the company hired an independent expert anyway and the expert has confirmed that the terms are fair.

• As Nampak’s share price continues to plummet, Allan Gray has sold more shares and now holds 14.6484% in the company. That’s about 14.6484% too much.

• The CEO of AYO Technology has retired and a successor will be named in due course.

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